Deciding Incentive Schemes - An Introduction

1. Designing Incentive Schemes
Performance Management and Compensation Practices
Assignment 3 - Team Presentation
KARTHIK SRINI B R
19EPMB044
KATHIRAVAN S
19EPMB047

2. Incentives

3. Incentives
• The term INCENTIVES mean, something which encourages a person to
do something. Or the “extra financial reward/ motivation”.
• Incentives is the performance-link reward to improve motivation &
productivity of the employees.
• Incentives includes all that provide extra pay for the extra performance in
addition to regular wages for the job.

4. Why Incentives Are Important?

5. Why Incentives Are Important?
• Workers are likely to work at their best when they are offered monetary
rewards for good performance.
• Provide opportunity for hard-working & ambitious employees to earn
more.
• To improve work-flow, work methods & man – machine relation ship.
• To bring employee involvement to make employee innovative.

6. Why Incentives Are Important?
• Incentives are the sound technique of improving productivity.
• Help to improve discipline and industrial relation.
• The cost of supervision are reduced.
• To obtain desired result.

7. What Makes An Incentive Plan Effective?

8. What Makes An Incentive Plan Effective?
• In the absence of mutual trust between management & workers, an incentives may
be viewed as an attempt to improve production/profit only.
• Incentive plan should be installed in consultation with workers & union. Payment
of incentives should be free from bias & established through scientific/proper work
study.
• To implement incentives plane effectively minimum wages should be guaranteed
to every workers.
• It should be easy to understand & simple to operate so that employee can
calculate their own earnings

9. What Makes An Incentive Plan Effective?
• It should provide equal opportunity to all workers to earn incentives pay.
• Plan should not be very costly in operation.
• Plan should be flexible to adopt any changes later on.
• Payment of incentives should be prompt i.e. as early as possible.
• It should be adequate to motivate each employees.
• Every plan should be reviewed periodically.

10. Basic Forms Of Incentives

11. Bonuses
• Bonuses is an incentive payment that is given to an employee beyond his
normal standard wages. It is generally given at the end of the year & does
not become part of the basic pay.
• The payment of bonus Act 1965 is applicable to every factory or
establishment in which 20 or more person are employed in an accounting
year.

12. Merit Pay
• Merit pay is a reward based pay on haw well an employee done the
assigned job. Higher the performance Greater will be the reward.
• The payment is depend on individual employee’s performance.

13. Commissions
Commission for sales people is paid on the basis of sales made by the
employee, through different plan. Such as,
• Salary Plan : where new salesman is appointed, is unable to generate
new.
• Commission Plan : where organisation is totally based on sales of their
product.
• Combination Of Both : is the most frequently used method.

14. Classification Of Incentive Plans

15. Classification Of Incentive Plans
Individual Incentive Plan
Time Based
Output Based

16. Classification Of Incentive Plans
Organisation Wide Incentive Plan
Profit Sharing
Co-Partnership
Gain Sharing
ESOPs

17. Classification Of Incentive Plans
Group Incentive Plan
Time Based

18. Individual Incentive Plan
Time Based Incentive Plan
– Under time based plan, per hour wage rate is determined & incentives paid
on the bases of time saved.
– Time based incentive plan is divided in four different ways.
– Hasley Plan, Rowan Plan, Emerson Plan, Bedeuax Plan.
– All these plans more or less follow the same method i.e. (pay bonus on the
basis of timed saved by employee), but with different formula.

19. Individual Incentive Plan
Output Based Incentive Plan
– Under output based plan, per piece wage rate is determined & incentives
paid on the bases of output produced. i.e. more output in standard time or
standard output in less time.
– For output based incentive following three methods can be used.
– Taylor Plan, Merrick Plan, Gnatt Plan.

20. Organisation Wide Incentive Plan
Profit Sharing
– Profit sharing is an arrangement by which employees receive in addition to
wages, a share is fixed in advance in profit of the enterprise.
– It is an agreement between employer & his employee.
– According to International Labour Organisation, “Profit-sharing is a
method of industrial remuneration under which an employer undertakes to
pay to employee, a share in net profit of the enterprise in addition to regular
wages”

21. Organisation Wide Incentive Plan
Co-Partnership
– Co-partnership is an extension of profit-sharing.
– Under this method worker’s share in company’s profit is paid in the form of
share by which they become entitled to participate in decision-making
process.

22. Organisation Wide Incentive Plan
Gain Sharing
– This method aims at increasing productivity & decreasing labour cost &
sharing the result gains wit employee.
– It is based on a mathematical formula which compares a standard perform
with actual performance during given period.
– When actual performance exceed the standard performance, shaving are
shared with employees.

23. ESOPs (Employee Stock Option Plans)
ESOPs (Employee Stock Option Plans)
– This method is originated in the USA in early 90s.
– Under this plan, the eligible employee are allotted company’s share below
the market price.
– The term “stoke option” implies the right of eligible employee to purchase
a certain amount of stoke in future at an agreed price.
– The eligibility criteria may include length of service, contribution to the
department etc.

24. Group Incentive Plan
• Group based or team-based incentives plans reward all team members equally
based on overall performance of the team member.
• Under group based incentive plan, individual out put can’t be measured.
• So team performance is evaluated on the basis of time taken rather than output
produced, if team complete their target in well advanced to standard time the
team member are eligible for incentives.
• Payment to team members may be made in the form of cash bonus or in the form
of non-cash reward such as pleasure trip, times off or luxury items.
• Team based incentives foster cohesiveness among tem members.

25. Group Incentive Plan
Methods for team based incentives plans are,
– Preistman’s production plan
– Rucker plan
– Scalon plan
– Town plan and so on.

26. Thank You